Some Evidence on the Importance of Sticky Wages

41 Pages Posted: 29 Jun 2010 Last revised: 30 Jul 2010

See all articles by Alessandro Barattieri

Alessandro Barattieri

Boston College

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Peter Gottschalk

Boston College; IZA Institute of Labor Economics

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Date Written: June 2010

Abstract

Nominal wage stickiness is an important component of recent medium-scale structural macroeconomic models, but to date there has been little microeconomic evidence supporting the assumption of sluggish nominal wage adjustment. We present evidence on the frequency of nominal wage adjustment using data from the Survey of Income and Program Participation (SIPP) for the period 1996-1999. The SIPP provides high-frequency information on wages, employment and demographic characteristics for a large and representative sample of the US population.The main results of the analysis are as follows. 1) After correcting for measurement error, wages appear to be very sticky. In the average quarter, the probability that an individual will experience a nominal wage change is between 5 and 18 percent, depending on the samples and assumptions used. 2) The frequency of wage adjustment does not display significant seasonal patterns. 3) There is little heterogeneity in the frequency of wage adjustment across industries and occupations. 4) The hazard of a nominal wage change first increases and then decreases, with a peak at 12 months. 5) The probability of a wage change is positively correlated with the unemployment rate and with the consumer price inflation rate.

Suggested Citation

Barattieri, Alessandro and Basu, Susanto and Gottschalk, Peter, Some Evidence on the Importance of Sticky Wages (June 2010). NBER Working Paper No. w16130, Available at SSRN: https://ssrn.com/abstract=1630135

Alessandro Barattieri

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Susanto Basu

Boston College, College of Arts and Sciences, Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467-3806
United States
617-552-2308 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Gottschalk

Boston College ( email )

Chestnut Hill, MA 02167
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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